Assume that a competitive firm's marginal cost of generating output q is specified by MC(q) = 3 + 2q. Suppose that the market price of the firm's product is $9: What level of output will the firm generates?
To maximize profits, the firm have to set marginal revenue equivalent to marginal cost. Given the fact that this firm is operating in a competitive market, the market price it faces is equivalent to marginal revenue. Therefore, the firm have to set the market price equivalent to marginal cost to maximize its profits:
9 = 3 + 2q, or q = 3.